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The management of P Corporation is considering purchasing equipment that would increase sales revenues by $269,000 per year, and increase cash operating expenses by $156,000 per year. The equipment would cost $294,000, and have a 6-year life with no salvage value. The annual depreciation would be $49,000. The simple rate of return on the investment is closest to: A) 16.7% B) 21.8% C) 23.8% D) 38.4%

Respuesta :

Answer:

C) 23.8 %

Explanation:

Ther total profitability from the purchase of the equipment is as follows:

Incremental sales revenues:                     $ 269,000

Incremental operating expenses:             $  156,000

                                                                   $   113,000

Depreciation on the equipment               $    49,000

Net profitability on new equipment         $    64,000

Return on equipment purchased   (64,000/269,000)  = 23.79 %          

 

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